Comment: What challenges lie ahead for Nigeria's Dangote oil refinery?
Nigeria's state oil firm NNPC Ltd. announced last weekend that it would not be the exclusive buyer of gasoline produced by the $20-B Dangote oil refinery, contradicting a statement made by the refinery last week.
This shift in plans could complicate the 650,000-bpd capacity refinery's strategy to supply gasoline in Nigeria.
Here are other challenges the refinery faces.
Crude supply. Nigeria's crude output has declined from a peak of 2 MMbpd a decade ago to around 1.3 MMbpd due to oil theft, sabotage and withdrawal of oil majors from onshore fields to focus on offshore exploration.
The NNPC, burdened by debt, has sold some of its future crude output to cover operational costs. So, it is struggling to provide enough crude to Dangote and smaller refineries. That has forced Dangote to source crude from the U.S. and Brazil to keep the refinery going.
Off-taker dynamics. The NNPC's decision not to be sole buyer of Dangote gasoline means the refinery, which favors bulk purchases, may now face a fragmented market dominated by local traders. This could lead to logistical headaches and pricing disputes.
Dangote was willing to sell to anyone on condition they buy a minimum of 1 MM liters (l), the refinery head Edwin Devakumar told Reuters in July.
The local fuel traders operate thousands of gas stations across Nigeria and could bypass Dangote refinery if they find its terms unattractive. In that case, Dangote has said it would export its products.
Gasoline pricing. The price of gasoline is a hot-button issue in Nigeria. That means Dangote has to price its gasoline competitively in a domestic market beset by a cost of living crisis while still maintaining acceptable profit margins.
The NNPC last week raised petrol prices at its outlets by at least 39% but labor unions and activists have opposed it.
Regulatory risks. The Dangote refinery has accused the downstream regulator of issuing licenses for the importation of substandard fuels, while criticizing the upstream regulator for not enforcing laws that mandate oil producers to supply crude to domestic refineries.
Nigeria's regulatory environment is unpredictable, and regulators tend to favor enforcement actions over business-friendly policies when disputes arise, industry officials say.
Although the Dangote refinery is located in a free trade zone, which facilitates exports, the Nigerian government controls export regulations.
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